Key insights
- BCA Research upgraded US equities to neutral, citing the AI-driven investment boom as a key economic driver, with hyperscalers investing heavily in data centers. They downgraded EU equities due to the Strait of Hormuz closure impacting consumers and pushing back easy monetary policy. Communication Services were upgraded, highlighting Meta and Google as AI beneficiaries. Investor positioning is light, creating upside potential.
Investing.com -- BCA Research is upgrading equities and downgrading cash, arguing that the artificial intelligence investment boom remains the dominant force driving economic growth even as the Strait of Hormuz closure weighs on consumers globally.
In a note, chief strategist Juan Correa said capex, not consumption, is the true driver of economic cycles, and that the current AI-driven investment boom is endogenous, meaning firms are spending regardless of consumer health.
Over the past 12 months, hyperscalers have invested more than $400 billion into data centers, with the combined remaining performance obligations of Alphabet, Microsoft and Amazon rising from $596 billion in the first quarter of 2025 to $1.5 trillion in the first quarter of 2026.
BCA said the Hormuz closure is draining inventories and squeezing consumers globally, pushing easy monetary policy off the table and hurting the European Union disproportionately relative to the U.S.
As a result, the firm is downgrading EU equities from overweight to underweight and Australia from overweight to neutral, while upgrading U.S. equities to neutral.
BCA also upgraded Communication Services from neutral to overweight, citing Meta and Google as top plays on the AI rally.
"We suspect that we could be in the early innings of a violent blow-off rally in AI-related stocks," Correa wrote.
On positioning, BCA noted that investor exposure has fallen sharply since the conflict began, creating a wall of worry for markets to climb. The firm said the administration's sensitivity to falling markets further skews the distribution of returns to the upside.